What is a DAO?

Last Updated:
November 29, 2022
What is a DAO?

In the past year or so, we have seen a lot of buzz around DAOs. There are DAOs that exist in many spaces, from venture funding right through to golf. There's even a DAO to buy a Manor for its members.

Intro: DAOs

In the past year or so, we have seen a lot of buzz around DAOs. There are DAOs that exist in many spaces, from venture funding right through to golf. There's even a DAO to buy a Manor for its members.

But what exactly is a DAO? How do they work? And who are they for?

What is a DAO?

A DAO is a decentralized autonomous organization (DAO), which has a set of rules and regulations that govern the organization, its members, and its operations.

Usually, DAOs operate around a treasury of assets that are co-owned and governed by the DAO’s members. More often than not, there will be a token associated with the DAO which acts as both an access pass to the community (i.e. you have to hold a certain amount of a token in your wallet to gain access to the DAO’s platform) and a tradable cryptographic asset.

How are DAOs governed?

DAOs follow a new type of organizational structure that has been developed by the web3 community.

Unlike traditional, top-down organisations in which there is a hierarchy, where members have varying levels of authority based on their standing within the hierarchy, often with one individual having a final say, DAOs have a decentralized structure, meaning that there is no central authority.

In DAOs, ownership of governance tokens, that can either be purchased or earned, allow wallet owners to propose and vote on decisions and rules that are then set by the DAO. These decisions are then automatically executed using smart contract calls.

Where did DAOs come from?

DAOs find their roots in groups of individuals who wanted to be able to pool their crypto resources in order to fund projects. In essence, it was a novel crypto model for crowdfunding.

 

One of the first DAOs to exist was known as The DAO, which allowed wallet owners to trade ETH for TheDAO tokens. The number of tokens a wallet owner held would be directly proportional to the amount of the ETH that they had added to the central treasury. They would then earn a proportion of the returns on the investments made by The DAO.

TheDAO became infamous following the DAO Hack in June 2016, a major event in the history of Ethereum, during which a hacker exploited a weakness in the smart contract governing the DAO and made off with $60 million worth of ETH. We don’t have enough time to go into it in this guide, but a war between good and evil swept the crypto universe, eventually leading to a hard fork in the DAO’s operating system to fix the weakness that was being exploited. Read all about it here or listen to a first person account of it on the Bankless podcast (highly recommended).

At the time, there were fears that this event would lead to mass movement away from the DAO structure, but over time we have seen more and more DAOs emerge, with increasingly innovative, interesting and downright bizarre purposes.

What are some examples of DAOs?

  • Uniswap
    Uniswap protocol is a platform that allows users to exchange tokens without the need for a rent-seeking intermediary. Governance of the protocol is managed by a DAO system, with owners of the Uniswap native token (UNI) given voting rights on decisions about the protocol’s development and also things like how to award community grants to fund interesting projects.

  • Links DAO
    Links DAO is a community of golf obsessive who have pooled their resources in order to invest in golf courses and other equally as golfy things, while giving members access to member benefits, such as exclusive apparel drops.

  • Friends with Benefits
    Is a social DAO centred around creators in the web3 space. Its goal is to build a thriving community with multiple layers and subcultures. A big part of FWB’s ethos centres around creative collaboration and relationship building. Members’ participation is rewarded with $FWB tokens. Anyone is able to purchase FWB tokens, but in order to actively participate in the FWB community and earn FWB rewards, you need to have been invited to join the FWB community.

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